Holt Medical Corporation manufactures two models of a medical device: Model 101 and Model 102. Below is the
current year production data for the company: Model 101 Model 102 Direct material in units 97,000 113,000 Direct labor hours 30,000 40,000 Machine hours 26,000 13,000 Number of setups 300 600 Number of devices produced 16,000 8,000 The 210,000 units of material had a total cost of $1,365,000. Direct labor is $17 per hour. The company has total overhead production costs of $1,850,000. a. If Holt Medical Corporation applies factory overhead using direct labor hours, compute the total production cost and the unit cost for each model b. If Holt Medical Corporation applies factory overhead using machine hours, compute the total production cost and the unit cost for each model. c. Assume that Holt Medical Corporation has established the following activity centers, costs drivers, and costs to apply factory overhead. Cost Pool Cost Driver Cost Volume Equipment Maintenance # of machine hours $585,000 39,000 Production Setup # of setups $125,000 900 Material Handling Units of Materials $540,000 210,000 Transportation Costs # of devices produced $600,000 24,000 Compute the total cost and the unit cost for each model. d. Explain why the unit cost for each model is different across the three methods of overhead application. How can such information benefit an organization?
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